Foreign direct investment fdi has grown at a phenomenal rate since 1980s and the trend of fdi has shifted from developed countries to developing countries during these past two decades. Empirical studies of bilateral foreign direct investment fdi activity show substantial differences in specifications. The determinants of foreign direct investmentempirical. We also found that the financial crisis in 2008 and 2009 had a negative impact on fdi flows. They often emphasize the economic ones, while underestimating the others. Foreign direct investment, innovation, and institutional quality in developing countries volume 15 issue 1 patrick j. Over the 90 years, capital inflows have become increasingly important in developing. Determinants of foreign direct investment in developing countries. The problem about the determinants of the foreign direct investment has received a lot of attention by policy makers and scholars due to its economic and policy implications. Institutional determinants of foreign direct investment with a coefficient of 0. We look at the institutional determinants of both within and acrosscountry variations in us foreign direct investment fdi flows over time. The findings of the paper suggest that fdi into macedonia from eu 24 countries is determined by market size and institutional related determinants. Foreign direct investment is appraised of foreign ownership of operating assets, such as factories, mines and lands. While the determinants of fdi in europe have been extensively analysed at the country.
Pdf institutional determinants of foreign direct investment. The determinants of foreign direct investmentempirical evidence from bahrain ahmad mohammad obeid gharaibeh assistant professor dept. The quality of institutions and foreign direct investment. The location choice of us foreign direct investment.
Institutional quality and democracy appear more important for fdi in services than general investment risk or political stability. Among the noneconomic factors, there are several problems regarding the identification of relevant fdi determinants. Foreign direct investment fdi is a strategic decision for achieving competitive advantage by multinational enterprises. The quality of institutions and foreign direct investment christian daude university of maryland at college park. Institutional fragility and outward foreign direct investment.
We use bayesian statistical techniques that allow one to select from a large set of candidates those. International trade and investment empirical studies of bilateral foreign direct investment fdi activity show substantial differences in specifications with little agreement on the set of covariates that are or should be included. With the unavailability of longterm data series on fdi in bangladeshs power sector, a mixed method approach semistructured interviews and. The determinants of koreas foreign direct investment from the united states, 1980 2001.
The views expressed in this working paper are those of the authors and do not necessarily represent those of the imf or imf policy. Indeed, good institutions are supposed to exert their positive in. Developing countries have become increasingly attractive investment destinations as they offer more potential growth and investment returns. Introduction the aim of this paper is to investigate the home country determinants of outward foreign direct investment ofdi from. Institutional quality is a likely determinant of fdi, particularly for less developed countries, for a variety of reasons. Amongst the main locational determinants of fdi that scholars have identified are. Saskia et all 1998, they have analyzed the determinants of net foreign direct investment fdi inflows in emerging economies between 1978 and 1995. Empirical studies of bilateral foreign direct investment fdi activity show substantial differences in specifications with little agreement on the set of covariates that are or should be included. According to the oecd, 2014, foreign direct investment is an investment that has as its objective the establishment of a lasting interest by a resident enterprise from one economy in an. Institutional quality is a likely determinant of fdi, particularly for lessdeveloped countries, for a variety of reasons. A comparative analysis khondoker abdul mottaleba kaliappa kalirajanb abstract by bridging the gap between domestic savings and investment and bringing the latest technology and management knowhow from developed countries, foreign direct investment fdi can play an. Determinants of foreign direct investment international monetary. Introduction the aim of this paper is to investigate the home country determinants of outward foreign direct investment ofdi from postcommunist economies. In addition to focusing on institutions we also explore a newly available fdi.
February 2004 abstract we study the role of the quality of institutions as a determinant of the location of fdi. Since the advent of the go global policy in the year 2000, chinas outward foreign direct investment ofdi into africa has been on the rise. Working paper 6 determinants of foreign direct investment. Political and institutional determinants of foreign direct. Financial development and foreign direct investmentthe. This paper attempts to assess the determinants of foreign direct investment fdi in china and its effects on the whole economy. Determinants of foreign direct investment inflows to africa, 19802007 john c. Walsh and jiangyan yu july 2010 abstract this working paper should not be reported as representing the views of the imf. Factors affecting foreign direct investment in pakistan prof. Relationship between institutional factors and fdi flows in.
Determinants of foreign direct investment fdi in the power. Foreign direct investment is considered a key element for a countrys economic integration and represents a key source to. An empirical investigation of firmlevel data, contemporary economic policy, 26 1, pp. Foreign direct investment, determinants, institutional development, international finance.
The purpose of this paper is to explore the role of institutional determinants of fdi using data from 24 emerging markets including china, india, indonesia, turkey, thailand, malaysia and pakistan. Openness is important for services, while gdp per capita is a more important driver of manufacturing. Commitment to contracts, land acquisition, and tax exemption are also important. The role of home country institutional determinants in. Institutional determinants of foreign direct investment article in world economy 305. The institutional determinants of chinas outward foreign.
Apr 18, 2007 in this paper, we contribute to the literature on the determinants of foreign direct investment in developing countries and re. Request pdf institutional determinants of foreign direct investment in this paper, we contribute to the literature on the determinants of fdi in developing countries and reevaluate the role. The compression of the determinants of fdi is important to take decisions on economic policy. Institutional determinants of foreign direct investment citeseerx. Fdi, political risk factors, institutional factor, panel. The determinants of the location were used as market size, labour cost, taxes and economic stability. The determinants of the location were used as market size, human capital, and urban. A sectoral and institutional approach prepared by james p. Institutional determinants of foreign direct investment such link could be seen as one channel through which institutions promote productivity growth. Beyond these were introduced two institutional variables the. After presenting the main theoretical contributions and the previous works done about chinas inwardfdi, an empirical study has been implemented extending the previous ones with a different data set more recent and with different methodologies.
Anyanwu is a lead research economist, development research department, african development bank j. The determinants of foreign direct investment in developing countries. While a depreciated currency is associated with more manufacturing fdi, a stronger one is associated with more services investment. The determinants of foreign direct investment in the african. This paper investigates the determinants of the decisionmaking process of firms conducting foreign direct investment fdi in the power sector.
When investigating foreign direct investment, scientists focus on different combinations of factors. The impact of institutional quality on foreign direct. Determinants of foreign direct investment fdi in the. Determinants of foreign direct investment in fastgrowing economies. Increasing foreign investment can be used for instance one measure of rising economic globalization. In other words our aim specify the roles of political and institutional factors in attracting foreign direct investment. Fdi is an integral part of the economic development strategies of almost all countries. The views expressed in this working paper are those of the authors and do not necessarily represent. Fdi is an integral part of the economic development strategies of almost all countries, especially of developing and emerging markets countries.
In this paper, we contribute to the literature on the determinants of foreign direct investment in developing countries and reevaluate the role of the quality of institutions on fdi independently. We find that institutions are a robust predictor of fdi and that the most significant institutional aspects are linked to propriety rights, the rule of law and expropriation risk. Political and institutional determinants of foreign direct investment. The institutional and cultural determinants of foreign. In this paper the role of institutions in determining foreign direct investment fdi is investigated using a large panel of 107 countries during 1981 and 2005. The role of home country institutional determinants in explaining outward foreign direct investment 1. This article examines the foreign direct investment fdi in portugal, i. We examine whether the determinants of fdi in brics are the same as for mint. Oecd ilibrary the determinants of foreign direct investment.
We investigate the determinants of firms to conduct foreign direct investment fdi. Pdf the main aim of this study is to investigate the relationship among foreign direct investment and institutions in emerging markets. Institutional determinants of foreign direct investment request pdf. Working papers describe research in progress by the authors and are published to elicit comments and to further debate. When different dimensions of institutions are not progressing at the same pace, internal friction and conflict arise during institutional development. The determinants of foreign direct investment oecd working papers on international investment selected studies on international investment and investment policy prepared for use within the oecd.
This type of investment occurs when a firm invests to produce a product. Institutional proximity between the origin and the host country also matters, but we find little impact of institutions in the origin country. We develop the concept of institutional fragility to investigate the outward foreign direct investment ofdi behavior of firms from emerging economies. Do institutions matter for foreign direct investment. A comparative analysis it is widely recognized that foreign direct investment fdi produces economic benefits to the recipient countries by providing capital, foreign exchange, technology and by enhancing. Development economists know that rapid growth requires a high level of investment, which in the absence of. Institutional determinants of foreign direct investment. The main objective of this article is to explain the link between foreign direct investment and globalization. In this paper, we contribute to the literature on the determinants of foreign direct investment in developing countries and re.
Such fragility could push a firm to escape its home country as a strategic response. Jan 31, 2017 we develop the concept of institutional fragility to investigate the outward foreign direct investment ofdi behavior of firms from emerging economies. Institutional determinants of foreign direct investment benassy. Mergers and acquisitions as the pillar of foreign direct. Localization and institutional determinants management research and practice vol. Institutional determinants of foreign direct investment overview of the recent advances of theoretical foundations of gravity equations for trade flows, it is still possible to justify this framework in particular for horizontal fdi originating from country i and intended to serve the local market of country j. The strength of our approach is that in contrast to the previous work that has focused on average fdi flows across countries, we are able to explain both the variations in fdi flows across and within.
This study uses industry level foreign direct investment fdi data from 57 countries 19892000, to examine the host country determinants of fdi flows in services as a whole, and in the major service industries. Available formats pdf please select a format to send. Evidence on the determinants of foreign direct investment. Some country experiences in investment promotion in africa 24 3 investment policies, institutional framework and effects 28 investment incentives 28 the mining sector and foreign direct investment 34 the free zones scheme and fdi flows 40 privatisation and fdi 41 4 empirical specifications and estimation of the econometric approach 45. Finally, we find that the effect of these factors often differs between advanced and emerging economies. The quality of institutions and foreign direct investment christian daude university of maryland at college park ernesto stein interamerican development bank march 2001 this version. Institutional determinants of outward foreign direct. Motives for, barriers to, and trends in foreign direct investment. In particular, the hierarchical distance and individualism are cultural dimensions which press the foreign direct investment fdi. The role played by fdi as a source of capital which augments domestic savings is attracting close attention in all developing countries. These results are encouraging in the sense that efforts towards raising the quality of institutions and making them converge towards those of source countries may help developing countries to receive more fdi, independently of the indirect impact of higher gdp per capita. The objective of this work is to identify the determinants foreign direct investment fdi. Regulatory aspects are the most influential for fdi in the power sector.
Determinants of foreign direct investment in services. Foreign direct investment fdi is an important topic for developing nations as it brings with it economic development, access to managerial skills, financial resources, marketing expertise, and leads to increased employment. Foreign direct investment fdi is an integral part of an open and effective international economic system and a major catalyst to development. The institutional and cultural determinants of foreign direct. Institutional fragility and outward foreign direct. We use a mixed method approach semistructured interviews and questionnaires. The determinants of foreign direct investment empirical evidence from bahrain ahmad mohammad obeid gharaibeh assistant professor dept. A sectoral and institutional approach, authorjames p. We decompose these factors into three categories political, policy risks and institutional. Toward a unifying model of foreign direct investment determinants. This paper investigates the role of economic structures as determinants of fdi inflows. This working paper should not be reported as representing the views of the imf.